The Bank of Japan headed by Kuroda Haruhiko has decided to delay the timing of reaching a 2%-inflation target another year “until around 2019”. Kuroda assumed the post of BOJ governor just after Prime Minister Abe Shinzo made his comeback in 2012. In April 2013, Japan’s central bank announced that it seeks to achieve a price stability target at 2% by promoting monetary easing in “new dimensions” which included the lowering of interest rates and purchase of Japanese government bonds. Since then, however, the BOJ pushed back its expected timing of attaining the 2% goal six times. The BOJ’s decision indicates that Governor Kuroda gave up accomplishing his goal before his term ends in April 2018. This confirms the failure of PM Abe’s economic policy, “Abenomics”, in which monetary relaxation is emphasized.

On the sidelines of inauguration of Abe administration

Prime Minister Abe, since before he took office in December 2012, had proclaimed that in order to “revitalize” the Japanese economy, it is necessary to overcome deflation. After taking office, he pushed then BOJ Governor Shirakawa Masaaki to carry out extraordinary monetary easing measures aiming at increasing consumer prices. A rise in consumer prices results from the upturn in economic activity as well as in consumer spending and rising wages. The artificial boost in prices through easy-money policies was criticized by many economic experts.

However, PM Abe, clinging to a policy of “monetary easing in new dimensions”, just after the inauguration of his government, replaced Shirakawa while in office with Kuroda and implemented unusual monetary policies. The BOJ through its monetary policies increases and decreases the discount rate and purchases government bonds from the money market. Under the control of Kuroda, who seeks to ease the money supply, a negative interest rate continues and the quantity of BOJ’s purchase of financial assets such as government bonds grows. Abe and Kuroda designated “monetary easing in new dimensions” as one of the pillars in Abenomics together with fiscal expansion policies and economic growth policies centering on deregulation.

Whatever the policy is, if it is wrong, it will be of no use. Promotion of monetary easing would boost commodity prices, expand consumption, and end up raising overall wages. This was the scenario the Abe government and the BOJ envisioned. Amid an ailing domestic economy, however, both the easy-money policy and generous corporate tax breaks have resulted in benefiting large corporations only. These companies hoarded what they gained and never passed it down in the form of wage hikes to increase consumer spending. All Abenomics brought about was an increase in corporate profits and an increase in their internal reserves. His economic policy, in contrast, produced a succession of negative effects on wages and consumer spending.

BOJ Governor Kuroda in April 2013 proclaimed that Japan would achieve the price rise “target of 2%” in about “two years”. After that, he repeatedly changed this timing, postponing from the initial April 2015 to October 2015, January 2016, April 2016, and November 2016. Now, he again decided to delay the set time, epitomizing the very collapse of Abenomics. Yet, the BOJ says, “Deflationary sentiments still remain.” The truth is, Abenomics turned out to be favorable only to large corporations but did not increase wages and domestic demand. It is now necessary to put an end to such a failed policy.

Economy, finance become distorted

The Kuroda-led BOJ keeps adopting negative interest rates and purchasing government bonds. As a result, the country’s economy and financial administration have become distorted more than ever. The national bonds the BOJ holds have now come close to Japan’s nominal GDP. That is, the BOJ takes care of deficit-covering bonds issued by the Abe government.

“Monetary relaxation in new dimensions” and other Abenomics policies should immediately be stopped.